For Immediate Release
Chicago, IL – October 1, 2018 – Zacks Equity Research highlights Cigna (CI - Free Report) as the Bull of the Day, First Solar (FSLR - Free Report) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Stitch Fix, Inc. (SFIX - Free Report) , Pepsico, Inc. (PEP - Free Report) and Costco Wholesale Corp. (COST - Free Report) .
Here is a synopsis of all three stocks:
Bull of the Day:
Health services behemoth Cigna earns our Bull of the Day honor today. This stock sold off at the beginning of 2018, but it has rallied strongly since then, and with the DoJ officially giving the nod to its pending merger with Express Scripts, it looks like Cigna could be on the cusp of a strong growth period.
Cigna is a major provider of medical, dental, disability, life, and accident insurance, working directly with massive governmental and non-governmental organizations. It also provides Medicare and Medicaid products.
The company is about to complete its acquisition of Express Scripts, the largest pharmacy benefit manager, in a deal worth $67 billion. This will widen Cigna’s portfolio to include the entire scope of one’s healthcare needs—from drug sales to insurance coverage.
Ideally, this merger will be great for customers, who should see lower costs and improved treatments if the marriage of medical care and pharmacy benefits works to create new efficiencies.
For Cigna, the deal will result in an estimated $650 million of cost synergies and double-digit accretion to earnings in the first year after it closes. The combined company is expected to generate free cash flow of at least $6 billion in 2021.
The Zacks Rank is rooted in earnings estimates and earnings estimate revisions. We love to see revision trends like that pictured above, as it shows us that analysts are becoming more optimistic about the company’s profitability—a factor that should result in rising share prices. These positive revisions have earned Cigna a Zacks Rank #1 (Strong Buy).
According to the most recent Zacks Consensus Estimates, Cigna is projected to see earnings growth of 32.6% in fiscal 2018 and then an additional 13.5% from that total in fiscal 2019. Revenue growth in those period is expected to touch 9.7% and 6.5%, respectively.
Bear of the Day:
American solar panel manufacturer First Solar has earned our Bear of the Day designation today for a variety of reason, namely its sluggish chart patterns and down-trending earnings estimates.
First Solar designs and manufactures solar modules with an advanced thin film semiconductor technology. The company faces intense competition from makers of crystalline-silicon solar modules, as well as manufacturers of other types of solar modules and PV systems that are comparable in terms of reliability and price per watt.
It is worth noting that, although First Solar does have a slight advantage in terms of price per watt right now, its stock has underperformed the industry in the past year. That’s largely due to recent headwinds, including rising production start-up costs. In the second quarter, First Solar incurred production start-up costs of $24.4 million, up from just $8.4 million in the prior-year quarter.
This put a dent in the company’s earnings results. First Solar reported a loss of 46 cents per share in that period, missing the Zacks Consensus Estimate of a loss of just two cents. That result did not comparable favorably to the adjusted profit of 64 cents per share First Solar posted in the year-ago period. Revenue in the quarter was also down to $309 million from $623 million.
Soft performance in the most recent quarter inspired analysts to revise their estimates for future periods to the downside. The Zacks Consensus Estimate for First Solar’s full-year earnings has slumped nine cents over the past 90 days, while the Zacks Consensus Estimate for its next fiscal year has dropped four cents in that time. This earned the stock a Zacks Rank #4 (Sell) this week.
Earnings and revenue for the next-to-be-reported quarter are expected to decline as well. Sales are expected to rebound in fiscal 2019, but early estimates are calling for revenue of that $3.02 billion—just a notch higher than the $2.94 billion seen in 2017.
In the ever-competitive solar business, it is important for companies to establish consistent growth, especially as they look to leverage advantages like selling prices. I’m just not seeing that type of consistency in First Solar right now.
Investors are paying about 17.3x forward 12-month earnings for FSLR right now, which is a slight discount to the industry average of 18.5x. However, even from a value perspective, we would rather pay a slight premium for a stock with a more positive earnings trend.
But perhaps most troublesome is FSLR’s recent chart pattern. The stock simply has not been able to get anything going over the past few months, and often that can signal bad news for investors as traders refuse to help out.
Upcoming Earnings to Watch: SFIX, PEP & COST
U.S. stocks are on track to finish the week basically flat, as rate hike and trade war uncertainty gave way to positive economic data amid the drama on Capitol Hill. The major indexes are now sitting just below their all-time highs, and with Q3 earnings season, it feels like a pivotal moment for Wall Street and our historic bull market.
Just a few weeks ahead of the bulk of the reporting, Q3 results look like they should be strong. Earnings expansion is projected to be in double-digit percentages for 10 out of the 16 sectors defined by Zacks for the Q3 period. Energy, Finance, Construction, Basic Materials, and Technology are expected to see the strongest growth, while Conglomerates and Autos are estimated to see modest declines.
With that said, the easiest way to prepare for this period is with the Zacks Earnings Calendar. This handy tool is your perfect one-stop-shop to properly prepare for earnings, dividend announcements, and other important financial releases.
We are not quite to the beginning of the traditional Q3 reporting season, but next week will feature a number of marquee earnings announcements. So what should investors be on the watch for? Let’s take a closer look at a few of the market's major reports due during the week of October 1.
1. Stitch Fix, Inc.
Stitch Fix is a trendy, relatively young personal shopping e-commerce platform. The company offers subscription boxes of custom-sorted apparel to online users. Stitch Fix sports a Zacks Rank #2 (Buy) and is set to release its latest quarterly results after the closing bell on October 1. Shares are up over 100% in the six months leading up to the report.
According to our latest Zacks Consensus Estimates, analysts expect Stitch Fix to report earnings of $0.04 per share and revenue of $318.90 million. We do not have year-over-year comparisons on these figures, as the company went IPO in late 2017.
2. Pepsico, Inc.
Beverage behemoth Pepsico is scheduled to announce its most recent quarterly financial figures before the market opens on October 2. The stock is basically flat on the year, although shares have rallied from 52-week lows reached in early May. PEP is holding a Zacks Rank #3 (Hold) ahead of the report.
Based on our most recent estimates, we expect Pepsico to post earnings of $1.56 per share and revenue of $16.38 billion. These results would represent year-over-year growth rates of 5.4% and 0.9%, respectively. Pepsico’s consensus earnings projection has trended downward over the duration of the quarter, but the company did see one positive estimate revision this week.
3. Costco Wholesale Corp.
Big box discount retailer Costco is slated to release its latest earnings report after the market closes on October 4. COST shares have rallied nearly 25% so far this year. The stock is holding a Zacks Rank #3 (Hold) less than one week from its report. However, earnings estimates for the soon-to-be-reported quarter have trended upward in the past 30 days.
Our Zacks Consensus Estimate for earnings is calling for profits of $2.34 per share, which would represent year-over-year growth of 12.5%. Meanwhile, revenue is expected to come in at $44.40 billion, up about 5.0% from last year.
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About the Bull and Bear of the Day
Every day, the analysts at Zacks Equity Research select two stocks that are likely to outperform (Bull) or underperform (Bear) the markets over the next 3-6 months.
About Zacks Equity Research
Zacks Equity Research provides the best of quantitative and qualitative analysis to help investors know what stocks to buy and which to sell for the long-term.
Continuous analyst coverage is provided for a universe of 1,150 publicly traded stocks. Our analysts are organized by industry which gives them keen insights to developments that affect company profits and stock performance. Recommendations and target prices are six-month time horizons.
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